Dow closes down triple digits after Deutsche Bank hits all-time low

U.S. stocks closed sharply lower on Thursday as concerns over Deutsche Bank sent its U.S.-listed shares to an all-time low and weighed on the broader financial sector.

The three major indexes hit session lows shortly after Bloomberg reported that approximately 10 hedge funds were reducing their exposure to the embattled European bank. Deutsche later told CNBC this is "typical" when doing business with hedge funds. The bank's U.S.-listed shares fell 6.67 percent, and dropped as much as 9.02 percent to $11.19, an all-time intraday low.

"When you look at what's going on in the Deutsche Bank options, you're seeing a lot of puts being bought," said Daniel Deming, managing director at KKM Financial. "So you're getting some concerns that this could turn into something bigger."

Jack Ablin, chief investment officer at BMO Private Bank, said the situation surrounding Deutsche Bank could be "creating uncertainty in the market," adding that one day there are reports that "Angela Merkel wants nothing to do with Deutsche Bank, and then you get another story saying Berlin is getting ready to bail them out."

"The volatility that we're seeing today ... is a symptom of a larger, underlying condition, mainly the lack of earnings growth" and high stock valuations, said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "This means that the market is prone to overreact to external factors. Today, that's OPEC and Deutsche Bank."

The S&P 500 fell 0.9 percent, with health care and financials leading decliners. The Dow Jones industrial average fell as much as 247.60 points, before closing about 200 points lower.

"I think we're in a very fragile situation when it comes to the market," said Peter Cardillo, chief market economist at First Standard Financial. "These waves of selling tend to cause technical erosion."

Earlier, U.S. stocks traded slightly lower as the initial excitement surrounding an OPEC deal on oil production dissipated.

"For all intents and purposes, the OPEC meeting was all rhetoric and no action," said Adam Sarhan, CEO at Sarhan Capital. "Remember, these countries do not like each other."

"The initial reaction, particularly in energy stocks, was too much too fast," he said. "We're in a situation where the market is looking for direction, ... and earnings season is right around the corner."

OPEC, the 14-country oil cartel, reached a deal to cut production starting in November. U.S. crude prices soared after the deal was reported, settling more than 5 percent higher. U.S. oil settled 1.66 percent higher at $47.83 per barrel.

"I think think it's a combination of [OPEC] and the data we got this morning. I'm not saying it was surprisingly good, but it was good and that puts a rate hike squarely on the table," said Maris Ogg, president at Tower Bridge Advisors.

"I do not foresee Wednesday's news as the catalyst that sends the broader indices out of their tortuous range from the past three months. Member states have a history of cheating their quotas to limit any potential gains," said Jeremy Klein, chief market strategist at FBN Securities. "The geopolitical tensions among those sitting down in Algiers may also force a termination of the agreement prior to or soon after its implementation."

The surge in oil lifted stocks, with the three major U.S. indexes closing higher. U.S. futures slipped Thursday, with S&P and Nasdaq futures falling 3 points and 8 points, respectively, while Dow futures dropped 30 points.

"We have a market that's looking at three things. First, we have some stabilization in oil prices. Second, we now have a netter idea of what the Fed wants to do and, lastly, we have an election that the market has to pay more attention to," said Art Hogan, chief market strategist at Wunderlich Securities.

"Those three things are working in concert, and one of those is going to have more pull than the others on any given day, but today we're at equilibrium," he said.

Andrew Burton | Getty Images

Traders on the floor of the New York Stock Exchange.

In economic news, the third — and final — read on second-quarter GDP showed the U.S. economy grew slightly faster than previously estimated. The Commerce Department said GDP rose at an annualized rate of 1.4 percent in the second quarter.

Meanwhile, weekly jobless claims rose 3,000 to 254,000, slightly less than expected. The four-week moving average of new claims, which smoothes out volatility, fell 2,250 to 256,000.

"At this point in the economic cycle, most of the influx into the labor force are young people or those being pulled off the couch with attractive wages. This low level of claims is not inconsistent with a slowing pace of job hiring's," said Peter Boockvar, chief market analyst at The Lindsey Group.

The government also reported that after-tax corporate profits fell at a 0.6 percent rate in the second quarter, a smaller drop than initially estimated. With profits declining, an alternative measure of growth, gross domestic income, or GDI, dropped at a 0.2 percent rate in the second quarter. GDI measures the economy's performance from the income side.

In corporate news, PepsiCo shares rose as much as 2.13 percent after the soda and snacks giant posted better-than-expected quarterly results. ConAgra and Accenture shares also rose following their quarterly results releases. After the bell, Costco is scheduled to post results.

"We have a pretty mixed picture here with Pepsi doing better than OK,, but then you have the restaurants, who are struggling," Tower Bridge's Ogg said.

U.S. Treasurys rose on Thursday, with the two-year note yield at 0.74 percent and the benchmark 10-year note yield at 1.56 percent. The U.S. dollar rose against a basket of currencies, with the euro near $1.122 and the yen around 101.1.